New York (HedgeCo.Net) – Miami Finance Forum and Bilzin Sumberg will be hosting and presenting a panel discussion of certain implications and anticipated market developments resulting from the SEC’s recent rule amendments allowing general solicitation of investors in private placement offerings.
Since Obama’s Jumpstart Our Business Startups Act (JOBs Act), the ban on hedge fund advertising has been lifted. The JOBS Act became law in March 2012 and made the initial recommendation to allow “general solicitation” for private issuers, the law was approved with bipartisan support in both houses of Congress.
The rule went into affect on September 23rd 2013 and so far only 8 hedge funds have filed for the *506c exception:
- Zeus Alpha LP
- Steben Select Multi-Strategy Partners, L.P.
- Force Select LTD
- Big Tree Capital Opportunity Fund I, L.P.
- Big Tree Capital Emerging Markets Fund, L.P.
- Ogee Group LLC
- Steben Select Multi-Strategy Partners, L.P., and,
- Israel Investment Fund LP.
“While hedge funds are finally allowed to advertise, we believe that funds will be cautious in adopting general solicitation.” Evan Rapoport, founder of industry portal HedgeCo.net, said. “No one wants to be first and sign up to be the regulators’ guinea pig, but I do think that if you work with advertisers that have familiarity with securities regulations, the early adopters have a large opportunity to launch successful campaigns.”
He went on to say: “We believe the first funds to take advantage of the JOBS act will more than likely be some of the largest funds in existence. It is the larger investment companies that can afford the upfront costs associated with rolling out a successful advertising and branding campaign.”
*Rule 506 of Regulation D is considered a “safe harbor” for the private offering exemption of Section 4(2) of the Securities Act. Companies using the Rule 506 exemption can raise an unlimited amount of money. A company can be assured it is within the Section 4(2) exemption by satisfying the following standards:
- The company cannot use general solicitation or advertising to market the securities;
- The company may sell its securities to an unlimited number of “accredited investors” and up to 35 other purchases. Unlike Rule 505, all non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment;
- Companies must decide what information to give to accredited investors, so long as it does not violate the antifraud prohibitions of the federal securities laws. But companies must give non-accredited investors disclosure documents that are generally the same as those used in registered offerings. If a company provides information to accredited investors, it must make this information available to non-accredited investors as well;
- The company must be available to answer questions by prospective purchasers;
- Financial statement requirements are the same as for Rule 505; and
- Purchasers receive “restricted” securities, meaning that the securities cannot be sold for at least a year without registering them.
If you are thinking about investing in a Reg D company, you should access the EDGAR database to determine whether the company has filed Form D. . If the company has not filed a Form D, this should alert you that the company might not be in compliance with the federal securities laws.
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